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OIG Report Revives Debate over Critical Access Status

on Friday, 30 August 2013 in Health Law Alert: Erin E. Busch, Editor

On August 15th, the Office of Inspector General (OIG) released a report sure to add fuel to the continuing debate over Medicare payments to rural providers: “Most Critical Access Hospitals Would Not Meet the Location Requirements if Required to Reenroll in Medicare.” After digitally plotting critical access hospital (CAH) and other hospital sites, the agency concluded that 64 percent of CAHs do not satisfy Medicare’s current location requirements related to rural status and distance from nearest hospitals. 


This result is not necessarily surprising. Until 2006, Congress permitted states to designate hospitals that did not meet distance requirements but were located in health care shortage or high unemployment or poverty areas as “necessary provider” CAHs. Necessary providers must meet other Medicare Conditions of Participation (CoPs) for CAHs, but the Centers for Medicare & Medicaid Services (CMS) permanently exempts them from the CoP requiring CAHs to be located more than 35 miles (or more than 15 miles in an area of mountainous terrain or where only secondary roads are available) from other hospitals. Grandfathered necessary providers represent around 75 percent of all currently enrolled CAHs.


Favorable Medicare reimbursement rates for CAHs—101 percent of reasonable costs rather than on a prospective payment system or fee schedule basis—is a frequent topic in the deficit reduction debate. Most recently, President Obama renewed his Administration’s proposal to reduce CAH reimbursement to 100 percent of reasonable costs and eliminate CAH designation for facilities located less than 10 miles from another hospital in the 2014 fiscal year budget. 


The OIG report describes how CMS could have saved approximately $268 million in 2011 if it had the authority to decertify necessary provider CAHs located 15 miles or less from the nearest hospital. The report also estimated that beneficiaries could have saved a total $181 million if CMS had decertified this group of necessary providers in 2011, given that beneficiary coinsurance amounts are calculated on hospital charges and not final costs, meaning that they may sometimes pay more to receive the same service at a CAH as opposed to an acute-care hospital.


OIG recommended that CMS:

  1. Seek legislative authority to remove necessary provider CAHs’ permanent exemption for the distance requirement;
  2. Seek legislative authority to revise the CAH CoPs to include alternative location-related requirements (e.g. permitting CAHs to maintain certification despite not satisfying the location standards if they primarily serve uninsured or underinsured populations);
  3. Periodically reassess compliance of all CAHs with location-related CoPs (CMS is currently evaluating CAH compliance with the distance requirements through recertification, but lacks statutory authority to survey grandfathered necessary providers for compliance with the same); and
  4. Apply a uniform definition of “mountainous terrain” to all CAHs.


If CMS follows through with these suggestions, the repercussions extend beyond endangering the provider status of nearly 2/3 of all CAHs. In addition to decreased Medicare reimbursement, the loss of CAH designation could jeopardize participation in the federal 340B Drug-Pricing Program and impact Medicaid reimbursement.


While CMS concurred with the first, third, and fourth recommendations, it remains to be seen how or whether it will implement the OIG’s suggestions. Last week, 20 lawmakers, among them Sens. Grassley and Harkin, argued against President Obama’s proposed CAH cuts in a letter to the Senate Finance Committee, and groups like the National Rural Health Association continue to actively lobby against laws that would threaten CAH status and encourage their constituents to reach out to their lawmakers directly. 


Readers can access the full report, OIG recommendations, and corresponding CMS responses at  

Whitney C. West

Read the Full Newsletter: Health Law Advisory August 30, 2013

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